What is commercial paper?
Commercial paper is sold by banks and large corporations to help meet their immediate needs for cash. It's a form of unsecured debt and is usually issued at a discount. It pays a fixed rate of interest and typically matures within six months.
Where have you heard about commercial paper?
During the financial crisis of 2007-2009, the commercial paper market nearly shrivelled up. As investors began to get nervous about the financial health of organisations such as Lehman Brothers, the market froze and firms were no longer able to access quick and easy funding.
What you need to know about commercial paper.
Commercial paper can be a good option for investors, particularly institutional investors, to put their money into temporarily to achieve a good return. That's because this type of investment can be converted into cash at short notice and is usually sold by profitable corporations with high credit ratings, although it's not without some risk as it's an unsecured debt.
For highly-rated companies, commercial paper can be a handy financing method as it’s the cheapest option for short-term unsecured borrowing. It usually has lower interest rates than a bank loan.
Commercial paper has historically been sold to large institutions and rich individuals, but is increasingly becoming available to retail investors.
Find out more about commercial paper.
Commercial paper is sold by corporations with high credit ratings. Read our credit rating definition here.